Bank of America Corp (NYSE:BAC) would appear to be out of the woods following Wednesday’s market disaster. BAC stock has recovered about half the prior day’s losses on Thursday amid a broader market recovery, but don’t break out the party poppers just yet.
Stocks are recovering from Wednesday’s deep decline — the worst one-day loss since last September — in mid-day trading on Thursday as the fallout from a number of Comey-Russia-Trump-Flynn headlines in recent weeks continues.
While the dip buyers are making a strong play as I write this — BAC stock is up about 1.6% — the technical and fundamental outlook remains challenging. Headwinds have been building for months, since stocks peaked in March (well, outside of the tech-heavy Nasdaq).
Bank stocks as a whole are looking vulnerable here as they have been the leading beneficiaries of the “Trump-flation” trade following election day. The Financials Select Sector SPDR Fund (NYSEARCA:XLF) surged nearly a third from its pre-election low on hopes of higher profits thanks to wider net interest margins, higher long-term interest rates and a possible de-regulation push from President Donald Trump.
On Wednesday, amid the selling carnage, they were among the hardest hit.
Things are looking particularly bad for Bank of America, with shares threatening to drop down and out of a massive six-month trading range despite Thursday’s recovery.
Things looked promising for BAC stock a month ago to the day. The company reported a top- and bottom-line beat on April 18, with earnings of 41 cents per share coming in 6 cents ahead of estimates on a 6.9% rise in revenues. But following an eventual post-earnings rally, the lion’s share of those gains have been eaten away.
A breakdown here in BofA would trace a downside price target of $18 — which would be worth a near 22% loss from here. It would also represent the first violation of the 200-day moving average since last August.
I have recommended the June $23 BAC puts to my Edge Pro subscribers.